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U.& Departmen t o f ; L ,M,:;| 1200 New Jersey Avenue, SE 

Transportation Washington, DC 20590 

Office Of the Secretary - : : : 71 o n h 

of Transportation ^ : '^ ^ 

Steven D. Hatter January 25, 2012 

Deputy Commissioner, Aviation 

4111 Aviation Avenue 

PO Box 196900 

Anchorage, AK 99519-6900 

Dear Mr. Hatter: 

As you know, Redemption, Inc., d/b/a Island Air Service, provides subsidized air service 

under the essential air service (EAS) program at Karluk. The Department's current 

contract with Island Air at Karluk calls for an annual subsidy of $44,349 with three 

nonstop round trips per week to Kodiak (ADQ) with 5-seat Piper PA-32 aircraft, and it 

expires March 31, 2012. In anticipation of the end of that contract, by Order 2011-12-7 the 

Department requested "best and final" proposals to serve Karluk for a new, two-year 

period, and we received timely-filed proposals from Island Air and from Andrew Airways, 

Inc. 

I am requesting your comment on the carriers' service and subsidy proposals before we 

submit a recommendation on the carrier-selection issue to the Assistant Secretary for 

Aviation and International Affairs for decision. Copies of each carrier's full proposal may 

be accessed online through the Department's Dockets Management System at 

http://www.regulations.gov/ by entering "DOT-OST 2004-19342" in the "enter Keyword 

or ID" field, so we will only summarize them here. 

Island Air The carrier proposes to provide a total of three nonstop round trips per week to 

Kodiak, Alaska (ADQ), for $44,203 annual subsidy for a two-year period. All service 

would be with 5-seat, Piper PA-32 aircraft. See Appendix A. 

Andrew Airways The carrier proposes to operate three nonstop round trips per week to 

Kodiak, Alaska (ADQ), for $38,492 annual subsidy for a two-year period. All service 

would be with 6-seat, Piper PA-32 aircraft. See Appendix B. 

Please note that any passenger fares shown in the carriers' proposals do not necessarily 

reflect the average local fares passengers would pay, but rather reflect the prorated portion 

of the total ticket price, e.g., the Karluk - Kodiak portion of a Karluk - Kodiak -

Anchorage ticket that the carrier would realize. Also, the implicit average fare, as reflected 

in the carriers' subsidy calculations is net of certain charges such as federal transportation 

security fees, excise and ticket taxes, and passenger facility charges. Of course, carriers 

have the discretion to charge fares they deem appropriate, and the proposed passenger fares 

were developed for subsidy rate computation purposes only. Each carrier would have to 
realize passenger fares comparable to the averages shown in its proposal in order to 

achieve break-even or profitable operations even with subsidy. 

You should also note that any schedules submitted by the carriers are illustrative only, and 

the carrier selected may make schedule changes to reflect changing conditions, e.g., to 

better meet shifting connecting bank times at the hub. The Department expects subsidized 

air carriers to maintain well-timed and well-spaced flights in order to ensure full 

compensation. 

We know this matter is important to you and we will act as quickly as possible upon receipt of 

your letter. In order to expedite the case, please submit your comments by email to 

EAS@dot.gov and to Kevin.Adams@dot.gov, by February 21. If you have any questions or do 

not wish to submit formal comments, please contact Kevin Adams at (202) 366-1047. 

Sincerely, 

Dennis J. DeVany 

Chief, Essential Air Service Division 

Office of Aviation Analysis 

Enclosures 

cc: Karluk Village Council, United States Postal Service, Island Air, and Andrew Airways 
Appendix A 

Page 1 of 2 

Total blocl< inours 

Aircraft Type: PA-32 

Total Hours with 10% weather delays 

Departures 

REVENUE 

Redemption, Inc d/b/a Island Air Service 

Calculation of Subsidy Requirement 2012 

Karluk, Alaska 

280 

308 

312 

Passenger&Cargo 

Mail 

Total Operating Revenue 

91,073 

20,277 

111,349 

DIRECT OPERATING EXPENSES 

Pilot 

Fuel & Oil 

Maintenance 

Aircraft Lease 

Insurance 

Total Direct Operating Expenses 

71 

105 

76 

40 

30 

ph 

ph 

ph 

ph 

ph 

21,890 

32,295 

23,431 

12,332 

9,249 

99,198 

Indirect Operating Expenses 

Traffic Related 11.5% of Revenues 12,805 

departure Related 30.90 per depart 9,641 

Capacity Related 23.8% of Revenues 26,501 

Total Indirect Operating Expenses 48,947 

TOTAL OPERATING EXPENSES 148,145 

Operating Loss -36,796 

Profit element @ 5 percent of Total Operating Expe 7,407 

Compensation Requirement 44,203 

Note 1 Bid is scheduled service into Karluk and not on a flag stop basis, 

scheduled service will be maintained even with any minimum loads of pax or mail 

as per the contract and OAG listing. 

Note 2 Backup aircraft is twin engine BN-2A Islander. With increased performance and capabilities 

in low weather and poor runway conditions it gets frequent use. 
Redemption, Inc d/b/a Island AirService 

Calculation of Subsidy Requirement 2012 

Karluk, Alaska 

Appendix A 

Page 2 of 2 

Schedule MIN MIN MIN MIN TFIIPS WEEKS Hours Dep./wk Total Pep. 

ADQ-KYK-ADQ 49 49 52 254.8 312 

Total Hours 

Total Hours with weather adjustment - see note 2. 

254.8 

280.28 

PAX RATE REV CARGO RATE REV MAIL RATE REV 

KARLUK 471 118 55578 47740 0.7435 35494.7 17480.0 1.16 20276.8 

Note 2.: An additional 10 percent for bad weather has been added to the calculated total 

to account for adverse weather delays 
Appendix B 

Subsidy Calculation of Andrew Airways, Inc. 

TOTAL BLOCK HOURS 

AlrcraJftType 

Passenger 

Freight 

Mail 

Total Revenue 

Pilot 

Fuel 

Oil 

Maintenance 

Lease 

Insurance 

Total Directs 

Ground Crew 

Accounting 

Total in directs 

Operating Expense 

5% Margin 

Total Cost 

ANNUAL COMPENSATION 

280 

Piper Saratoga - 6 Passenger Seats 

Subject to 1000# Total Weight Capacity 

$ 93,744 

$ 26,656 

$0 

$120,400 

$ 27,210 

$ 26,252 

$ 420 

$ 30,030 

$ 22,400 

$ 7.428 

$113,740 

$ 25,056 

$ 12,528 

$ 37,584 

$ 151,324 

$ 7,556 

$ 158,892 

$ 30,492